What is Innovation Portfolio Management and Why Do You Need it?

What is IPM?

IPM, or innovation portfolio management, is sometimes mistaken for a notion in general portfolio management for the readers' convenience. Understanding your innovation portfolio's meaning is the first step in managing it. General portfolio management is the term used to describe all strategic operations carried out within a department, including ongoing projects, marketing initiatives, and plans for corporate growth. Though theoretically similar, innovation portfolio management is a technique that enables you to manage innovation initiatives apart from a company's or department's regular business operations. Projects that belong in your innovation portfolio, however, will have a distinct beginning and finish.

Why do I need innovation portfolio management?

Regardless of the size of project pipelines, any organization can be paralyzed because of the number of projects or areas that could be driving innovation, and that, for some reason, are not.

The role of IPM is to bring clarity to existing innovation projects, their outcomes, and if they are aligned with your company goals. More specifically, innovation portfolio management takes care of:

• Managing innovation risk by reviewing a project’s ambition, strategic alignment, and pipeline.
• Identifying where in your innovation process projects get stuck, to define mitigating strategies.
• Highlighting negative spaces on strategic topics innovation teams could be working on.
• Deprioritizing non-essential/strategic projects.
• Understanding revenue potential of ongoing projects.

Steps towards innovation portfolio management

Connecting the dots between innovation projects and your company’s strategic objectives, IPM shines a light on projects, objectives, and innovation horizons that need specific attention. Here are three steps to implement IPM.

1. Outline your strategic mapping framework

Any organization’s innovation projects can be split into two categories to help differentiate an innovation project’s nature, improving the overview of the entire portfolio in the end.

Improve & Optimize: all activities related to efficiency, new systems, processes, etc. Projects under this category aim to make things better and faster while spending fewer resources.

Explore & Create: this scope stands as the traditional understanding of innovation – inventing something new. This is what most people refer to when they talk about innovation. Because of this, it’s important to bear in mind that exploring or creating innovation initiatives goes beyond implementing radical innovation.

The Explore & Create category involves doing something new, or changing the way something is done, like coming up with new value propositions, or exploring new markets.

Because there is no one size fits all, these macro categories are broken down in subcategories depending on your organization’s specific activities, leading to deeper, more specific insights.

2.Map strategic priorities

Most businesses have a clearly defined set of overarching strategic goals that respond to the company vision. These are the ones translated into operational innovation objectives, which you should map according to the subcategories you defined in the previous step. The result of this stage of the IPM process is initial insights on where your organization’s focus lies, based on what your projects represent. For many of our partners, this is when they experience their first AHA! moment.

3. Map innovation projects

You’ve mapped your priorities, so now it’s time to begin charting ongoing and pipeline projects according to each subcategory. Once all innovation projects are under the right one, color coding comes into play.

Color coding helps map the relationship between projects and strategic objectives, showing if they contribute to the company’s goals. This is an eyeopener phase, where our partners are driven to question why projects are there in the first place, reevaluate investments, and set new grounds for informed decision making.

When mapping your projects, strategic objectives and subcategories won’t be the only filtering elements in place. Other tags and details that drive different views of each project should cover:

• High-level resource intensity (Low – Medium – High)
• Started Project vs. Pipeline Project
• Potentially problematic projects (eg. shared ownership, involves high number of stakeholders, dependencies to other departments/projects)

Results and learnings

One of the most significant outcomes of implementing innovation portfolio management is having a clear road towards strategic resource (re)allocation.

Knowing where your resources are going, and why, will help you determine if your innovation investments are being put to good use.

Beyond resource management, IPM offers visibility on the negative space in your innovation portfolio. It shows which strategic objectives don’t have enough projects in the pipeline to drive them; the balance (or lack of) between subcategory projects; and overall excluded strategic objectives that need to be re-introduced through new projects in your pipeline.

Another outcome is having an overview of how ambitious projects are. This helps businesses determine whether their expenses and focus answer to their hopes for change or stability, in the long run. How important your innovation ambitions are will be only determined by your own innovation strategy.

Letting you know if all your eggs are in one basket and understanding all that comes from managing your innovation portfolio will help you, in the end, manage your risks.

Although scarce resources in a specific department, negative spaces, or ambition gaps may, at first, come across as disadvantages, they reveal more about your organization’s true strategic objectives than your current activities.

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